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Lord Clinton-Davis: My Lords, the noble Lord says no, but he rejected their arguments, which were strongly in favour of the Bill and the principles underlying it. My noble friend Lord Graham spoke from considerable experience of the Co-operative Movement and an interest in the construction industry. He, too, thought that there were overwhelming reasons for commending the Bill to the House.
The noble Lord, Lord Ezra, comes from a background of considerable commercial experience. I am pleased that that continues, notwithstanding his retirement some years ago from the National Coal Board, where he was a most outstanding chairman. The noble Lord, Lord Alexander of Weedon, speaks as a banker but I remember him best as a distinguished Silk. All those noble Lords made the point that, in principle, the Bill is desirable. I give way to the noble Lord.
Lord Strathclyde: My Lords, I cannot let the noble Lord get away with that. I hope that nothing I said gave the impression that I did not entirely welcome the speeches of the maiden speakers. It is a natural courtesy of this House to do so. I rejected their basic argument and it is interesting that the noble Lord has repeated the point. All those noble Lords spoke from the point of view of big business. I wish to protect the interests of smaller firms. Big business can employ another credit controller, someone else to organise the accounts. That
is the way to deal with the problem. However, small firms cannot and that is the point to which the noble Lord must address himself.
Lord Graham of Edmonton: Now he says it!
Lord Clinton-Davis: My Lords, the noble Lord, Lord Strathclyde, is making life more difficult for himself moment by moment. The fact is that each noble Lord dealt with small and medium-sized enterprises. The noble Lord, Lord Alexander of Weedon, specifically dealt with that point in his notable contribution to the debate. I do not in any sense seek to say that the noble Lord was being offensive to them. Of course he was not; it is not in his nature to be deliberately offensive. However, the fact remains that they disagree with him, as do I.
We heard a notable maiden speech from the noble Lord, Lord Hardinge, who has considerable experience of the Booksellers Association of Great Britain and Northern Ireland. He, too, declared that the Bill was justified in principle.
I wish to turn to some of the criticisms that have been made. Perhaps I may be forgiven if I do not deal with every point. Where appropriate, I shall write to noble Lords. I wish to examine the speeches with care because they were helpful--even those which were critical. The noble Earl, Lord Home, made play with the responses of business representative organisations to the previous government's consultation on the needs of small firms. Apparently the organisations to which he alluded did not favour a statutory right to interest. Perhaps that was so; I was not party to the consultation and I do not know. Due to my lack of knowledge, I certainly do not wish to refute what he was saying.
However, we consulted widely on our proposals set out in the Green Paper and that represented a different story. We did not rush into the matter, as suggested by the noble Lord, Lord Strathclyde. There was a profound and important consultation. Presented with properly devised policies, we found significant support. I set that out previously and I do not propose to repeat it. I commend to the House the summary of responses which we published on 11th December.
The noble Earl also mentioned experience abroad, specifically in Spain. However, that missed the point, too, because the measure is about expectations and risk. The legislation is about addressing problems which affect cash-flow management. It is imperative that we do whatever we can to stamp out late payment. That has been the burden of the argument across the House today, even from those who oppose what we are doing.
My noble friend Lord Sainsbury cogently set out experience in the Nordic countries, where a right to interest already exists, but we must make our own experience in this matter. We are not presenting the legislation as a panacea and there is nothing compulsory about it, as I have indicated. It is complementary to all the other measures which have been taken and the systems which have been proposed to enable small firms to better manage their finances. The legislation is only a tool, and I agree that proper credit and cash-flow
management is also extremely important, as is an efficient court system. The use of the small claims court and the procedures involved are being investigated by my noble and learned friend the Lord Chancellor.My noble friend asked why an interest rate is not mentioned on the face of the Bill. I should point out that, in drafting legislation, we must ensure that it can stand the test of time. That is why, very often, we must rely on statutory instruments in order fully to implement the legislation. I am not trying to pull the wool over anybody's eyes. The formula is not stated in the Bill because it may not be incumbent on the Bank of England to announce the base rate of interest in the future. If that is so, we may have to announce the rate periodically. But we should like to pin the rate to the base rate if that is at all possible.
Of course, it is necessary to reflect on experience. That is why we are undertaking the research project with Bradford University to which I referred earlier. I assure the noble Earl that we shall be publishing a draft order in relation to the commencement of this Bill which deals with that matter, and we shall be able to consider it in Committee. Therefore, I hope that that gives the noble Earl some reassurance.
I turn to the speech of the noble Lord, Lord Ezra. I welcome his general support for the Bill and I shall take very careful note of the constructive ideas which he put forward. We have not finished consulting on the Bill but we shall continue to do so as it is being considered in this House and in another place. It should not be a matter of real political controversy. There may be technical matters on which we need to consult. Indeed, I have consulted with representatives of business during the course of the past few days.
The noble Earl asked how the Government will deal with any inconsistencies in relation to the proposed EU directive on late payment. Indeed, a number of your Lordships asked a similar question. It is likely to be of theoretical interest at least for the foreseeable future. We have been in consultation with the Commission and have been led to believe that our Bill will not require further legislation if the directive is adopted. But there is a point raised by the noble Earl, Lord Home. The directive has not yet been published and we have not yet seen a draft of it, but it looks as though it is somewhat behind time. With the processes which must be undertaken within the European Union, it is not likely to be enacted within the foreseeable future. I believe that it will take rather longer even than the whole of the period that we are contemplating for the phasing in of this legislation. I hope that that will not be the case but it is the likelihood. But again, I hope that what I have said is reassuring to the House.
I turn now to the concerns expressed by my noble friend Lord Borrie on the directive. The Bill includes powers that should enable it to take on board most possible changes which the directive may bring forward. Clause 5(2) is drafted to ensure that consistency with the directive can be ensured but also to ensure that, if the advice of business and Bradford University is that the rate of interest needs to be a deterrent, we can provide such a rate.
My noble friend suggested also eliminating the first phase of the legislation, as did the noble Lord, Lord Ezra. The legislation would then commence by giving small businesses the right to claim interest against all their commercial customers, including other small businesses. In my opening remarks, I explained the rationale for phasing in: it is to ensure that small businesses are given a reasonable opportunity to develop their own payment management systems before they become subject to claims for interest. The Government, with the private sector, are pursuing another range of measures to help them to do so, and I do not propose to go into that again.
I should point out that something like 87 per cent. of business respondents to our Green Paper who expressed a view supported our phasing proposals and 85 per cent. agreed with the timetable. As I have already indicated, we shall bring forward a draft commencement order in time for discussion in Committee.
The noble Lord, Lord Hardinge, noted the performance of the public sector in meeting bills on time. We recognise that the public sector should lead by example. We propose to require all government departments, agencies and local authorities to pay on time and if they do not, they will be subject to the provisions of the Bill before the House today in relation to commercial contracts. We shall publish tables of the payment performance of central and local government. We have published recently a league table of the payment performance by departments for the financial year ending March 1997. The fact is that the majority of departments paid more than 97 per cent. of their bills on time. I do not claim credit for this Government for that. The previous government sought to impose that obligation on their departments.
All departments have signed to the CBI Prompt Payers Code and the British Standard for Prompt Payment, BS7890, has also been adopted.
The noble Lord also raised the legitimate concern that the Bill does not allow for end-of-month billing arrangements like BACS. I assure the noble Lord that it is our intention that such billing, where it is agreed by both parties to the contract, should still be permitted. I refer the noble Lord to Clause 14(2).
My noble friend Lord Borrie questioned whether it was necessary to prevent contracting out of the legislation. We understand that concern. But cash flow risk has a cost for the entire economy and must be addressed. Therefore, I agree with my noble friend that, if contracting out were allowed, there must be a risk that small businesses would be bullied into accepting contracts which do not provide a remedy for late payment. That should not happen.
My noble friend raised also the matter of the treatment of conditional sales and hire purchase agreements. Those have been excluded because they are used to grant authorised credit and usually provide for interest payments on default of the periodic payments being made on time. The supplier is normally more powerful than the customer and can insist on interest. In contrast, hire agreements may be used to provide goods for short-term projects and may not include provisions
for late payments. We are giving consideration to excepting longer term hire arrangements where the asset is provided for much or all of its economic life span, as those agreements are on a par with those for authorised credit.On the question raised by the noble Lord, Lord Alexander of Weedon, Clause 6 is designed to provide remission of interest where the creditor's conduct makes it unjust to require interest. That will cover circumstances of incorrect invoices, tardy responses to queries, being unavailable to receive payment and so on. But it is not possible to provide an exhaustive list of circumstances in which remission should be available. The noble Lord would probably concede that. But Clause 4(4)(b) also provides that the statutory credit period of 30 days does not start to run unless the debtor has notice of the amount due.
The noble Earl, Lord Kintore, raised the fear that suppliers would be afraid to claim interest from their customers. Of course there is a risk of that but I believe that the customers will be slow simply to cut off a supplier because of that particular issue. It is costly; it is bureaucratic; and it is difficult to find good suppliers just like that. I believe practice will ensure that that fear is much greater than the reality.
The Federation of Master Builders was mentioned by my noble friend Lord Graham. I assure him that I believe that payment will improve shortly within the building industry. There is a scheme introduced by the Department of the Environment and our scheme here is complementary to that.
I do not have time to go on and I have spoken for long enough in a wind-up speech. However, a number of important points were raised which, I assure the House, we shall consider in depth both before Committee and during the Committee stage in the Moses Room within the course of the next few weeks.
This measure has been mooted for some time. It is supported strongly by small business. We have sought to limit the restrictions on freedom of contract to the barest minimum consistent with the aims of the Bill. It is an important step in reducing business risk and improving the competitiveness of the country as a whole. For those reasons, I commend the Bill to your Lordships for a Second Reading.
On Question, Bill read a second time and committed to a Grand Committee.
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